Correlation Between Fast Retailing and Old Republic

Can any of the company-specific risk be diversified away by investing in both Fast Retailing and Old Republic at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Fast Retailing and Old Republic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fast Retailing Co and Old Republic International, you can compare the effects of market volatilities on Fast Retailing and Old Republic and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Fast Retailing with a short position of Old Republic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and Old Republic.

Diversification Opportunities for Fast Retailing and Old Republic

-0.37

Correlation Coefficient

Fast Retailing  Old Republic

Very good diversification

The 3 months correlation between Fast and Old is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Old Republic International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Republic Interna and Fast Retailing is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Fast Retailing Co are associated (or correlated) with Old Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Republic Interna has no effect on the direction of Fast Retailing i.e., Fast Retailing and Old Republic go up and down completely randomly.

Pair Corralation between Fast Retailing and Old Republic

Assuming the 90 days horizon Fast Retailing Co is expected to generate 0.15 times more return on investment than Old Republic. However, Fast Retailing Co is 6.47 times less risky than Old Republic. It trades about -0.22 of its potential returns per unit of risk. Old Republic International is currently generating about -0.18 per unit of risk. If you would invest  33,590  in Fast Retailing Co on October 5, 2024 and sell it today you would lose (330.00) from holding Fast Retailing Co or give up 0.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Fast Retailing Co  vs.  Old Republic International

Fast Retailing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fast Retailing Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Fast Retailing is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Old Republic Interna

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Old Republic is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Fast Retailing and Old Republic

The main advantage of trading using opposite Fast Retailing and Old Republic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fast Retailing position performs unexpectedly, Old Republic can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Old Republic will offset losses from the drop in Old Republic's long position.

The idea behind Fast Retailing Co and Old Republic International pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Global Correlations module to find global opportunities by holding instruments from different markets.